AWB removes contract power to reject grain at absolute direction

AWB removes contract power to reject grain at absolute direction

Farm Online News

AWB has been praised by the competition watch-dog for making proactive changes to its grain marketing contracts with growers, to avoid potential legal ramifications.


AWB has been praised by the competition watch-dog for making proactive changes to its grain marketing contracts with growers, to avoid potential legal ramifications.

The Australian Competition and Consumer Commission (ACCC) announced today that AWB Harvest Finance Pools had adjusted its standard form grain pool contracts to ensure three specific unfair terms were removed.

AWB’s adjusted grain pool contract terms will now ensure that: fees for its services will not vary after the contract has been accepted by a grower; no new fees will be imposed after the contract has been accepted by a grower; and grain will only be rejected in limited circumstances.

Changes to the Competition and Consumer Act 2010 in November 2016 empowered the ACCC to look closely at improving the quality of contracts in business segments like agriculture, to ensure small business operators like farmers are protected.

Previously, AWB’s grain pool contracts originally included terms giving it the power to: unilaterally increase fees to growers, such as administration fees or management fees, after the contract had been accepted by a grower; introduce new fees to growers from time to time after the contract had been signed; and reject grain at its absolute discretion.

It’s understood AWB’s actions were not prompted by any specific number of direct complaints from growers, or as a result of legal action, due to the previous contract conditions.

After the changes to unfair contract laws came into effect in late 2016, the ACCC conducted a comprehensive compliance examination of agricultural specific contracts, where the AWB’s contact terms came to light.

ACCC Deputy Chair Dr Michael Schaper said AWB cooperated with the competition watch-dog to amend the terms of its grain pool contracts.

Dr Schaper said the ACCC’s move to review the fairness of contract terms – not just in the farm sector - came about due to a variety of different sources.

“Sometimes it’s as few as one or two complaints and sometimes the ACCC comes across them and is made aware of issues,” he said.

“The overarching message about these unfair contract terms for small businesses, which includes small farmers, is that we’re quite serious about it.

“This one with the AWB is one of the first we’ve taken in the agriculture sector but it’s by no means the first we’ve taken in other areas.”

Dr Schaper said the ACCC had made proactive adjustments to unfair contract terms with other companies in areas like rubbish collection and Fairfax Media.

He said before the new laws came into place, the ACCC went through a number of industries and firms and pointed out where they had problems with contract terms.

Dr Schaper said agricultural businesses needed to review contracts to make sure they’re reasonable and unfair contracts are “just essentially unreasonable contracts”.

He said three major issues made a contract between a small business and a bigger firm, unreasonable.

One was the contract term being not reasonably necessary, to protect a big firms’ interests.

Second was it leads to a big disparity in the relative bargaining power between the two sides and thirdly it causes some sort of loss or potential loss to the business, like a small farmer.

Dr Schaper said before the changes were made, AWB had the ability to reject grain at its ‘absolute direction’ but that was “unreasonable”.

“We’d say AWB being able to reject the grain if it’s not fit for purpose or damaged before arriving in terminals, or it has been soiled, are reasonable provisions,” he said.

“But to basically have a contract that says, at any point in time, they can say ‘no’ is really a classic example of overkill and putting too much (legal) right on one side of the leger and nothing on the other side.

“To say they can introduce a new fee, even after signing contract, goes against the notion that all of us adhere to as a consumer or in business, that you make a deal, you put it in writing, you sign in and you go forward.

“You don’t say ‘oh but I can change it when I want to, but you can’t’.”

AWB Corporate Affairs Director Peter McBride said following discussions with the ACCC, his organisation reviewed and updated its farmer customer contract terms which now provided more clarity for its customers.

“It should be noted that at no time did AWB increase or introduce new fees after a grower entered into a contract, or reject contract grain at its discretion,” he said.

“AWB has - and continues to - always publish all fees like remuneration earned by AWB, prior to customers contracting.

“As noted by the ACCC, AWB has fully cooperated with the ACCC regarding its farmer customer contract terms and made changes to ensure clarity and transparency.

“AWB is a leading provider of grain and risk management solutions to Australian wheat growers and prides itself on honesty and transparency.”

GrainGrowers Policy General Manger Dave McKeon said the changes to small business contract laws introduced last year, were now having a positive tangible impact on grain farmers.

“It’s a warning signal to all grain buyers that any contracts engaged with growers must be undertaken in a fair and transparent manner,” he said.

“Also, importantly this outcome has shown the positive outcomes of the work of Deputy Prime Minister, Michael McCormack, within his previous portfolio as Small Business Minister.

“This also builds on the work of grain farming representative groups, who have been working hard with both the supply chain and ACCC to make improvements to standard form contracts on issues such as payment terms, fees and clarity on use of the PPSR.

“Into the future, technology such as blockchain has the potential to help mitigate some of these counter party risk challenges, but as it stands it is still vitally important that growers are aware of all the terms in any commercial contract and they take proactive steps to manage their counter party risk.”

Mr McKeon said today’s announcement from the ACCC demonstrated that growers can be exposed to “blatantly unfair contract clauses and reminds us of the importance of a continued focus of fair competition in the grains supply chain”.

“The ACCC have undertaken a range of market studies in the horticulture, red meat and dairy industries,” he said.

“We now must consider whether a focussed look at the grains supply chain is needed.”

ACCC work continues for agriculture

Dr Schaper said it was always preferable for issues to be sorted out without the ACCC’s involvement and a “reasonable number” of firms had already come forward and changed their contracts.

“That’s what we’d prefer to see,” he said.

“Our advice to small businesses, small agricultural enterprises and small farmers is if you get a contract, obviously read it carefully, don’t just assume it’s all going to be all sweetness and light.

“If you see something that sticks out and you think it’s unreasonable, in the first instance you should go back to the big business, AWB or whoever, and say, ‘this doesn’t strike me as necessary or balanced and can we sort it out between ourselves directly so we’re both happy with this’.

“For unfair contracts, there are no financial penalties as such but the ACCC can take firms to court and get the courts to order not only for the contract to change but also essentially for parts of it to be declared void, especially unfair terms.

“And the issue sometimes can also arise subsequently, of damages as well.

“Our short message is – review your contracts – and it’s almost like the pub test.

“If it doesn’t look reasonable and seems unreasonable and you couldn’t give it to a farmer without them saying, ‘this looks unfair’ you may want to review it and look again.”

Dr Schaper said the ACCC was continuing to work with other agriculture sector businesses, asking them to identify areas of concern regarding unfair contract terms and come forward.

“If you are a small business operator and think you have an unfair contract and you can’t get a sense of being able to negotiate or amend it with the larger firm, then feel free to contact us,” he said.

“We really do rely on businesses to come forward with their concerns and contact us.

“We just don’t have the wherewithal to go through conceivably millions of contracts with different businesses.

“It’s really important to make it clear, not only to effected growers but to the broader agricultural community, that we’re serious about it.

“So smarten up your act and make sure that your contracts are in order.

“We’ve been looking at the agriculture sector generally, rather than just particularly at grains.

“I can’t really comment on whether or not we’ve looked at other grain businesses at the moment, but you’d think, if you were in the same industry, and the ACCC has already had one marketing organisation agree to change its contract terms, it’s probably good common sense to turn around and ask yourself the question, ‘are our contracts fair and fit for purpose as well’.”

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